Forms of Business

Have you ever wondered exactly what the difference is between a partnership, a business, and a corporation? Business is the all-inclusive term we use to mean, basically, a group of people working together to make profit.
Here are some of the different forms of businesses:

Sole Proprietorship
'Sole' means single and 'proprietorship' means ownership. It means only one person or an individual becomes the owner of the business. Thus, the business organization in which a single person owns, manages and controls all the activities of the business is known as sole proprietorship form of business organization. The individual who owns Business Studies and runs the sole proprietorship business is called a ‘sole proprietor’ or ‘sole trader’. A sole proprietor pools and organizes the resources in a systematic way and controls the activities with the sole objective of earning profit. Is there any such shop near your locality where a single person is the owner? Small shops like vegetable shops, grocery shops, telephone booths, chemist shops, etc are some of the commonly found sole proprietorship form of business organization. Apart from trading business, small manufacturing units, fabrication units, garages, beauty

parlors, etc, can also be run by a sole proprietor. This form of business is the oldest and most common form of business organization. According to J. K. Hanson, “Sole proprietorship is a type of business unit where one person is solely responsible for providing the capital, for bearing the risk of enterprise and for the management of the business.”

Characteristics of Sole Proprietorship
The following are the main characteristics of a sole proprietorship:

Single ownership
The most important characteristics of sole proprietorship are that the ownership management and control of the organization is vested with that individual only.

Capital contribution
In this form of business organization, the capital is contributed by the sole proprietor from his own resources. If he requires more finance, it may be borrowed from his friends and relatives. Thus the invite burden of capital requirement for this business is the sole responsibility of the owner. He may arrange it from its own or by borrowing of his own risk.

No separate legal existence
No distinction is made between the enterprise and its owner and both are looked upon as one any same person. Death or insolvency of the sole proprietor brings his business to an end.

One-man control
The sole proprietor is personally responsible for the control and management of enterprise. There is no interference from any person in the management. He has full authority to take decisions for guiding the destiny of the enterprise. Thus, sole proprietorship is a one-man show.

Unlimited liability
The liability of a sole proprietor is always comprehensive and unlimited. The personal property of the proprietor would also be used to pay off the debts and loans of any incurred from the outsider if the business assets one insufficient to meet such of outsiders in case liabilities of the enterprise cannot be paid out of assets of the enterprise. This provides a check on the reckless actins of the sole proprietor.

Limited area of activities
As a result of limited finance and managerial ability, the sole proprietor has a limited area of operation. Unlimited liability also restricts the proprietor from taking bold decisions and expands its area of operations.

No legal formalities
There are no legal formalities in order to start a sole proprietor form of business. Anybody and everybody can start the business any time any everywhere so also they can dissolve the same as per their wishes. Because it is subject to minimum legal formalities and government restrictions but full delineation of sole trader.

Freedom of line of business
The sole proprietor is free to select any business of his choice. It provides an excellent opportunity for self-employment, especially for those who have limited amount of finance. He can easily switcher and expand its business activities. He has the liberty to decide everything of his own.

Advantages of Sole Proprietor Form of Business
Easy formation
The formation of sole proprietorship business is very easy and simple. No legal formalities are involved for setting up the business excepting a license or permission in certain cases. The entrepreneur with initiative and certain amount of capital can set up such form of business.

Direct motivation
The entrepreneur owns all and risks all. The entire profit goes to his pocket. This motivates the proprietor to put his heart and soul in the business to earn more profit. Thus, the direct relationship between effort and reward motivates the entrepreneur to manage the business more efficiently and effectively.

Better control

The entrepreneur takes all decisions affecting the business. He chalks out the plan and executes the same. His eyes are on everything and everyone. There is no scope for laxity. This results in better control of the business and ultimately leads to efficiency.

Promptness in decision-making
When the decision is to be taken by one person, it is sure to be quick. Thus, the entrepreneur as sole proprietor can arrive at quick decisions concerning the business by which he can take the advantage of any better opportunities.

Each and every aspect of the business is looked after by the proprietor and the business secrets are known to him only. He has no legal obligation to publish his accounts. Thus, the maintenance of adequate secrecy leaves no scope to his competitors to be aware of the business secrets.

Flexibility in operations
The sole proprietorship business is undertaken on a small scale. If any change is required in business operations, it is easy and quick to bring the changes.

Scope for personal touch
There is scope for personal relationship with the entrepreneur and customers in sole proprietorship business. Since the scale of operations is small and the employees work under his direct supervision, the proprietor maintains a harmonious relationship with the employees. Similarly, the proprietor can know the tastes, likes and dislikes of the customers because of his personal rapport with the customers.

Inexpensive formation and management
The cost of formation of a sole proprietorship is the minimum because no cost is involved in its formation excepting the license fee in certain cases. The management of the business is also inexpensive as no specialists are normally appointed in various functional areas of the business which is the added advantages.

Free from Government control

Sole proprietorship is the least regulated form of business. Regulated laws are almost negligible in its formation, day-to-day operation and dissolution.

Easy dissolution
Like that of formation, the dissolution of the sole proprietorship is also very easy. Since the proprietor is the supreme authority and no regulations are applicable for closure of the business he can dissolve his business any time he likes.

Socially desirable
New and small entrepreneurs can take up business on small- scale basis. There will be no scope for concentration of wealth in few hands. Sole proprietorship continues its operation in almost each and every area of business activity and caters to the need of the society. Further, it provides ample opportunities for large-scale self-employment for rural and less skilled personnel. Thus, it is socially desirable.

Disadvantages of Sole Proprietor Form of Business
The sole proprietorship business is not free from criticism. It suffers from certain limitations and drawbacks, because of its very nature and scope of operations. These points may be duly taken care of while entrepreneur adopting this mode of business.

Limited resources
The financial resources of any small entrepreneur as an individual is limited. He mainly finances from his own savings or borrows from financial institutions, friends and relatives as per his capacity. Thus, limited resource is the major drawback of this form of business.

Limited managerial capability
Modern business requires updated managerial skills in each and every sphere of activity. We cannot hope a single individual to possess all the managerial talents necessary to carry on a business efficiently. The

limited financial resources of the sole proprietorship is a hindrance to hire the services of managers with expertise in different areas, thereby the growth of the business.

Unlimited liability
Since the liability of the sole proprietor is unlimited, the private properties of the proprietor is also at risk. When the business fails, the private properties of the owner are utilized to pay off the business debts. Thus, the entrepreneur must have to look this aspect carefully.

Uncertainty of continuity
The continuity of the business is uncertain because the business may come to an end due to the incapacity or death of the proprietor. Even if at all the business passes on to the successor of the proprietor, it is unlikely that they may posses the business acumen like that of the proprietor. The discontinuance of the business is a social loss.

Less scope for economies of large-scale
The economies of large-scale operation is enjoyed only by a large-scale enterprise, which the sole proprietorship business normal lacks. Therefore, there is less scope for availing the economies of large-scale.

Not suitable for large-scale business
The limited financial resources, limited managerial capability of the proprietor, risk to the private property etc. makes the so proprietorship business unsuitable for large-scale business. This system of business can not afford for large-scale operation

Difficult to maintain personal contact
Even though there is scope for personal touch in sole proprietorship business, it is unlikely to happen when the business is undertaken in different areas. It is not so easy on the part of the proprietor to have personal contact with customers and suppliers at the same time.

Suitability of Sole Proprietorship

This form of organization is best-suited to the following types of business.

Small capital requirements
Business where capital involvement is very small and managerial talent has hardly and effects on performance are best suited to this form of organization. A business must be small indeed to permit the owner to know and the supervise everything.

Artistic goods and personal attention
Business which produces artistic of special type of goods and requires personal attention of the proprietor are best suited for this form or organization. Under sole proprietorship, individual skill and talents can bring.

Personal services
Personal services of professional people such as accountants, solicitors, doctors, architects etc., can be successfully rendered under this system.

Computer services
Business which requires small machines and demands intelligent handling such as computer service, are best suited to sole proprietorship.

Business requiring cooperation
Business which requires spirits of co-operation are better managed under sole proprietorship viz., a tailoring shop.

Sole Proprietor Survival Strategies
It is a fact of life that we all get older and along with getting older we face the deleterious effects of aging. Particularly in construction, the knees, wrists, forearms, elbows, shoulders and feet start to rebel if we tax them too much. The truth be known we own most of that. For years we didn’t warm-up before beginning work, we didn’t wear knee pads and we didn’t ask for help when picking up or carrying heavy things. There were many times when we used the wrong tools for the job because that’s what we had handy and we often didn’t bother with ear plugs, respirators, safety glasses, dust masks and gloves for that matter. We just forged ahead and got the job done. Now, many of us are feeling the pain and we are not alone. The U.S. is entering a prolonged period the likes of which has never been seen. Various estimates report the “birth bubble” that occurred between 1945 and 1964 produced 76 million children that today account for 28 percent of the population. We are referred to as the “baby boomers” but there’s nothing baby and certainly nothing booming about us anymore. We’re just getting older and various types of people are trying to figure out how to sell stuff to us and pay for the staggering health care costs that are coming down the pike. Meanwhile huge numbers of us are still working but looking down the road and wondering what retirement is going to end up being like. Each of you has to take it from there and figure out what direction you should go in.

If you love what you’re doing, then keep doing it. Find ways to ease the burden of things you are finding to be more challenging. Suppose you decide that what you need is a helper. Think about the things that person could help you do, feel what it would be like to NOT have to run down three flights of stairs to get something from the truck. Fix that in your mind and pay close attention as you go through your days until the perfect person shows up. Then, hire them, pay them fairly, treat them well, and feel how great it is to not have to take the generator out of the

truck all by yourself. If you hate book work then outsource the books. The time and energy you save will come back to you tenfold in new business because you will be focusing on the things that you do best. If you are weary of what you are doing then select a time when you can most afford to put things on hold. Do some creative scheduling so you open up a window of opportunity for two weeks away from the business, and then get away. Even if you just stay home, watch TV and go fishing, take some time to feel what it’s like to NOT be building. If after two weeks you’re feeling antsy and you have renewed vigor then take the advice above. Instead, if you are feeling uninspired and don’t want to get back at it then start planning for a different future. Take account of all your skills. Consider older skills that you haven’t used for awhile. Think about what you would rather be doing. Don’t let what you’ve been doing become the ONLY thing you can do. Then, imagine doing the new thing, feel what it would be like, and step out of that corner you’ve been in. Above all, banish fear and assume (know) you will succeed.

Sole Proprietorship

Characteristics of Sole Proprietorship

Advantages and disadvantages of Sole Proprietor Form of Business

Suitability of Sole Proprietorship

Sole Proprietor Survival Strategies

A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return. Partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions. If you are a partnership or a partner (individual) in a partnership, use the information in the charts below to help you determine some of the forms that you may be required to file. Section 4 of the Partnership Act defines a partnership as follows: “Partnership is the relation between persons who have agreed to share the profits of a business carried by all or any of them acting for all.” A partnership, as defined in the Act, must have three essential elements: 1. There must be an agreement entered into by two or more persons. 2. The agreement must be to share the profits of a business. 3. The business must be carried on by all or any of them acting for all.

Elements of Agreement




A business partnership that operates without a business partnership agreement is a disaster waiting to happen. Here are the vital elements you need to incorporate into the legal paperwork of your business partnership agreement. A written partnership agreement is good first step in the formation of a successful business partnership. But a partnership agreement doesn't do much good unless it addresses the issues and concerns that are most important to the partners as well as the business itself. Although there may be other items you want to address in your agreement, the SBA (Small Business Administration) recommends that partnership agreements cover the following basic concerns:

Equity Positions. Your partnership agreement has to discuss how much equity each partner will be expected to invest in the business. Some experts suggest avoiding 50/50 equity buy-ins because equal ownership has the potential to create gridlock when it comes to decision making. Compensation. Partner compensation and ownership shares are potentially different issues. It's important to describe both the cash and non cash forms of compensation for each partner. Dispute Settlement. At some point, you will experience conflict in your partnership. What happens then? If you're smart, your partnership agreement will clearly lay out a process for resolving conflicts and settling disputes between partners. Profit & Loss Distribution. In a business partnership, profits and losses are distributed directly to the partners and are reportable on their personal income tax returns. Your business partnership agreement should clearly define profit and loss distribution percentages in a manner that is acceptable to all of the partners.

Dissolution. Eventually the partnership will come to an end. When that occurs, business assets will be inventoried and distributed to the partners. Even if that won't take place for another thirty years, the asset distribution percentages and process needs to be addressed in the partnership agreement. Termination. Walking away from a partnership isn't as simple as walking away from a job. There are a lot of issues to consider -and all of them should appear in your partnership agreement's termination clause. Restrictions. A thorough business partnership agreement will address the authority and restrictions of the partners. What is each partner's purchasing authority? What kinds of decisions require the approval of all the partners? By discussing these kinds of issues in your partnership agreement, you can prevent conflicts from happening down the road.

The Essence of Partnership Business

The choice you make for the structure of your business, whether a LLC or some other form, will have an impact on your business liability, fund-ability and tax implications. The easiest and most common form of business structure is the sole proprietorship. A sole proprietorship is a business of one without corporation or limited liability status. The individual represents the company legally and fully. Common proprietorship includes part-time businesses, direct sellers, new start-ups, contractors, and consultants. Operating a business with a partner appeals to some small business owners. The road to entrepreneurship can lonely. Greater rewards may result from forming a business partnership. Partnerships offer more freedom for business owners with shared business tasks and the potential to earn greater profits. A limited liability company (LLC) is a type of business ownership combining several features of corporation and partnership structures Owners of a LLC have the liability

protection of a corporation. All your business losses, profits, and expenses flow through the company to the individual members. You avoid the double taxation of paying corporate tax and individual tax. An S Corporation (Small Business Corporation) is a business elected for S Corporation Status through the IRS. This status allows the taxation of the company to be similar to a partnership or sole proprietor as opposed to paying taxes based on a corporate tax structure. Creating a C Corporation is more complicated than forming a limited liability company or a sole proprietorship, but there are several tax benefits your company could enjoy. A C Corporation has a more complex structure than a limited liability company and reports to a board of directors and shareholders. Each of these business structures are the main choices for entrepreneurs. As your business evolves from start up to maturity, you should re-evaluate your choice from time to time.

Types of Partnership
A partnership arises whenever two or more people co-own a business, and share in the profits and losses of the business. Each person contributes something to the business -- such as ideas, money, or property -- though management rights and personal liability will vary depending on which of three modern partnership forms the business takes: general partnership, limited partnership, or limited liability partnership (LLP).

General partnership
A general partnership involves two or more owners carrying out a business purpose. General partners share equal rights and responsibilities in connection with management of the business, and any individual partner can bind the entire group to a legal obligation. Each individual partner assumes full responsibility for all of the

business's debts and obligations. Although such personal liability is daunting, it comes with a tax advantage: partnership profits are not taxed to the business, but pass through to the partners, who include the gains on their individual tax returns at a lower rate.

Limited Partnership
A limited partnership allows each partner to restrict his or her personal liability to the amount of his or her business investment. Not every partner can benefit from this limitation -- at least one participant must accept general partnership status, exposing himself or herself to full personal liability for the business's debts and obligations. The general partner retains the right to control the business, while the limited partner(s) do(es) not participate in management decisions. Both general and limited partners benefit from business profits.

Limited liability partnership
Limited liability partnerships (LLP) retain the tax advantages of the general partnership form, but offer some personal liability protection to the participants. Individual partners in a limited liability partnership are not personally responsible for the wrongful acts of other partners, or for the debts or obligations of the business. Because the LLP form changes some of the fundamental aspects of the traditional partnership, some state tax authorities may subject a limited liability partnership to non-partnership tax rules. The Internal Revenue Service views these businesses as partnerships, however, and allows partners to use the pass through technique. Existing partnerships that wish to take advantage of LLP status do not need to modify their existing partnership agreement, though they may choose to do so. In order to change status, a partnership simply

files an application for registration as a limited liability partnership with the appropriate state agency. All states require disclosure of the partnership's name and principle place of business. Some states also require, among other things, identification of the number of partners, a brief description of the business, a statement that the partnership will maintain insurance and written acknowledgment that the limited liability status may expire.

The Characteristics of Partnership
The main features of partnership are given below:

There must be agreement between the parties concerned. This is the most important characteristics of partnership. Without agreement partnership cannot be formed. "No agreement no partnership." But only competent persons are entitled to make a contract. There are some provisions contained in the partnership agreement. These are determined clearly before the commencement of business. But it differs from business to business. This documents may be written or oral. But it must be written so that disputes may be settled according to the provisions of agreement.

Number of Partnership
There should be more than one person to form a partnership. But there is restriction for the maximum number of partners. In case of ordinary business, the partners must not exceed 20 and in case of banking must not exceed 10 (before nationalization).

The object of the formation of partnership is to carryon any type of business. It may be manufacturing or merchandise type small or large scale business. But it should not be illegal business in the country concerned.

Profit motive

The basic motive of the formation of partnership is to earn profit. This profit is distributed among the partners according to agreed proportion. If there is loss it will be sustained by all partners except the minor.

Conduct of Business
The business of partnership is conducted by all the partners or any or them acting for all. But each partner is allowed to participate in the management by law.

It has no separate entity apart from its members. It is not independent of the partners. Law has not granted it any legal entity.

Unlimited liability
This is the prominent feature of partnership that the liability of each partner is not limited to the amount invested but his private property is also liable to pay the business obligations.

Each partner contributes his share in the capital according to the agreement. Some persons become partners without investing any capital to the business. But they devote their time, energy and ability to their business instead of capital and receive profit.

Transferability of share
There is restriction to transfer the share from one partner to another person without the consent of existing partners. So the investment in the partnership remains confined into few hands.

One partner is an agent as well as principal to other partner. He can bind the other person by his act. In the position of an agent he can make contract with another person or parties on behalf of his concerned firm.

Mutual Confidence

The business of the partnership cannot be conducted successfully without the element of mutual confidence and cooperation of partners. So the members must have trust and confidence in each other.

Free Operation
There are no strict rules and regulations to control the partnership activities in our country i.e. no restriction for the audit of accounts, submission of various reports and other copies to any government authority. So this organization may operate freely without any interference

Partnership Agreement
Here's a list of the major areas that most partnership agreements cover. You and your partners-to-be should consider these issues before you put the terms in writing: • Name of the partnership. One of the first things you must do is agree on a name for your partnership. You can use your own last names, such as Smith & Wesson, or you can adopt and register a fictitious business name, such as Westside Home Repairs. If you choose a fictitious name, you must make sure that the name isn't already in use and then file a fictitious business name statement with your county clerk. For more information, see Nolo's article Registering Your Business Name. • Contributions to the partnership. It's critical that you and your partners work out and record who's going to contribute cash, property, or services to the business before it opens -- and what ownership percentage each partner will have. Disagreements over contributions have doomed many promising businesses. • Allocation of profits, losses, and draws. Will profits and losses be allocated in proportion to a partner's percentage interest in the business? Will each partner be entitled to a regular draw (a withdrawal of allocated profits from the business) or will all profits be distributed at the end of each year? You and your partners may have different financial needs and different ideas about how the money should be divided up and distributed, so this is an area to which you should pay particular attention.

Partners' authority. Without an agreement to the contrary, any partner can bind the partnership (to a contract or debt, for example) without the consent of the other partners. If you want one or all of the partners to obtain the others' consent before obligating the partnership, you must make this clear in your partnership agreement. • Partnership decision making. Although there's no magic formula or language for making decisions among partners, you'll head off a lot of trouble if you try to work it out beforehand. You may, for example, want to require a unanimous vote of all the partners for every business decision. Or if that leaves you feeling fettered, you can require a unanimous vote for major decisions and allow individual partners to make minor decisions on their own. In that case, your partnership agreement will have to describe what constitutes a major or minor decision. You should carefully think through issues like these before you and your partners have to make important decisions. • Management duties. You might not want to make ironclad rules about every management detail, but you'd be wise to work out some guidelines in advance. For example, who will keep the books? Who will deal with customers? Supervise employees? Negotiate with suppliers? Think through the management needs of your partnership and be sure you've got everything covered. • Admitting new partners. Eventually, you may want to expand the business and bring in new partners. Agreeing on a procedure for admitting new partners will make your lives a lot easier when this issue comes up. • Withdrawal or death of a partner. At least as important as the rules for admitting new partners to the business are the rules for handling the departure of an owner. You should set up a reasonable buyout scheme in your partnership agreement. To learn more about this issue, read Nolo's article Plan Ahead for Changes in Partnership Ownership. • Resolving disputes. If you and your partners become deadlocked on an issue, do you want to go straight to court? It might benefit everyone involved if your partnership agreement provides for alternative dispute resolution, such as mediation or arbitration.

Importance Agreement



For many people entering into a business partnership, the only agreement they have between them is a handshake and good intentions. They are too busy creating a business plan and brainstorming about the future of their venture to care very much about what might happen to their business relationship in the future. Others are a little more forward thinking and find themselves a generic, legal sounding partnership contract online and print that out and sign it. The one thing that many new business partners overlook is the importance of discussion and real honest communication before the partnership is officially forged and the necessity of creating a partnership agreement that is tailored specifically to their company and addresses all the issues it needs to. Creating such an agreement calls for both partners to ask themselves, and each other, a series of rather searching questions and then answer them honestly. What would happen in the future should one partner wish to sell the business? Who is actually responsible for what? How will disputes that arise be mediated? They should also take the time to examine their differences in values, ethics and personality and how those things could affect the success of the partnership in the future. Of the 70% of business partnerships that are born to fail many of them do so due to differences in opinion and unresolved conflicts rather than an actual problem with the business itself. When drawing up a partnership agreement remember that although you cannot predict the future, you can try to ensure that you plan for the unexpected as completely as you possibly can.

The Advantages Agreement




There are three general forms of business entities: partnerships, corporations and sole proprietorships. Partnerships are a type of business entity with two or more people working together. During the formation of a partnership, the parties have an option to draft a partnership agreement, but it is usually not mandatory to do so.

Ability to Contract
One of the fundamental legal rights in the United States is the ability to contract. Generally, a person can enter a contract under any terms he desires. There are some restrictions, such as not being able to contract to commit illegal activities, as well as some protections, such as contracting with a minor. The ability to contract allows partners to agree in writing to almost anything they want. In the absence of a partnership agreement, the partnership must follow the laws of the state where the partnership is based.

Partnership Profits
Generally, in the absence of a partnership agreement, the partners split profits based on each one's ownership percentage. For example, Partner 1 owns 40 percent of Partnership A, and the partnership's income for the year is $100,000. Partner 1 would receive $40,000. With a partnership agreement, the partners can decide how to split profits. For example, Partnership A creates a partnership agreement where Partner 1 receives 60 percent of profits while he owns 40 percent of the partnership. If Partnership A's income is $100,000, then Partner 1 receives $60,000.

Partnership Losses
In the absence of a partnership agreement, partnership losses are shared in the same manner as profits. However profits are split, the partnership will share the losses the same way. With a partnership agreement, the partners can share losses however they see fit. This is advantageous because partnership losses are deductible from the partners' individual tax returns.

If a disagreement arises in a partnership, it may be difficult to decide how to resolve the issue. A partnership agreement allows the partners to define each party's responsibilities and identify procedures, such as arbitration, to resolve problems.

State law usually determines how liquidation procedures will occur in a partnership. However, the partnership agreement can define aspects of this process, such as the order of liquidation from partners' capital accounts.

The Disadvantages Partnership
The following are the disadvantages of Partnership:


Unlimited Liability
The liability of partners is unlimited. They are not only liable for their business investments but their private properties can also be taken for business liabilities. Partners try to avoid risks and it restricts the expansion and growth of the business.

Limited Resources
There is a limitation in raising additional resources for expansion purposes. The business resources are limited to the personal funds of the partners. Borrowing capacity of the partners is also limited. The number of partners to be added to a business is also limited. A banking company cannot have more than ten partners and in other businesses the number of partners cannot exceed twenty. So there is a limit beyond which partners cannot be added.

The partnership concern suffers from the uncertainty of duration because it can be dissolved at the time of death, lunacy or insolvency of a partner. The lack of trust among partners can also lead to dissolution. The discontinuity of the business is a social loss and it causes inconvenience to the consumers and workers.

Mutual Distrust
The mutual distrust among partners is the main cause for the dissolution of partnership concerns. It is difficult to maintain harmony among partners because they may have different opinions and may not agree on certain matters. Lack of confidence in each other can be a cause for quarrels and it may lead to the dissolution of the firm.

Limitation on Transfer of Share
No partner can transfer his share to a third party without the consent of the other partners. If a partner wants his share back it will not be possible without the approval of other partners or without dissolution of the firm. In case of a company, any shareholder can transfer his shares without affecting the working of the business. In partnership, a partner is permanently wedded to it.

Lack of Public Faith
The accounts of partnership concerns are not published. So public is unaware of the exact position of the business. There is a suspicion in public mind that these concerns earn huge profits at the cost of consumers. There is no legal binding for the publication of accounts. So partnership concerns lack public confidence.

Lack of Prompt Decision
All important decisions are taken by the consent of partners so decision-making process becomes time consuming. There may be a possibility of losing business opportunities because of slow decisionmaking. The decisions are generally taken by consensus; it may be difficult to convince all partners for agreeing to a particular decision.


Definition of Partnership

Business Structure Essentials

Types of partnership

The Characteristics of Partnership

Partnership agreement

The Importance of a Partnership Agreement

The Advantages of a Partnership Agreement

The Disadvantages of Partnership

Joint-Stock Companies
A joint-stock company is a business entity which is owned by shareholders. Each shareholder owns the portion of the company in proportion to his or her ownership of the company's shares (certificates of ownership).[1] This allows for the unequal ownership of a business with some shareholders owning a larger proportion of a company than others. Shareholders are able to transfer their shares to others without any effects to the continued existence of the company. In modern corporate law, the existence of a joint-stock company is often synonymous with incorporation (i.e. possession of legal personality separate from shareholders) and limited liability (meaning that the shareholders are only liable for the company's debts to the value of the money they invested in the company). And as a consequence joint-stock companies are commonly known as corporations or limited companies. Some jurisdictions still provide the possibility of registering joint-stock companies without limited liability. In the United Kingdom and other countries which have adopted their model of company law, these are known as unlimited companies. In the United States, they are, somewhat confusingly, known as joint-stock companies.

Joint Stock Company
Prof. L. H. Haney - "A Joint Stock Company is a voluntary association of individuals for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership."

Characteristics of Joint Stock Company
The analysis of above definitions reveals the following characteristics of a company:

Association of persons
A company is a voluntary association of persons established for profit motive. A private company must have at least two persons and the public limited company must have at least seven persons to get it registered. The maximum number of persons required for the registration in case of private company is fifty and in case of public company there is no maximum limit.

Artificial person
A company is an artificial person. It is created by law. Like that of the natural person, it can own property, incur debts, file suits, enter into contracts with others under its own name. It can be sued and fined but cannot be imprisoned.

Separate legal entity
A company being created under law has a separate entity from its members. Any of its members can enter into contracts with others. A member cannot bind a company by his acts or dealings with the third parties. The company can file a suit against its members and its shareholders can also sue the company. Further, a shareholder is not liable for the acts of the company even though he may be holding all the shares of that company.

Limited liability
The liability of the members or shareholders is limited to the extent of the value of shares held or the amount guaranteed by them. The shareholders are not personally liable for the debts of a company beyond that limit.

Transferability of shares

The shares of a public limited company are freely transferable and can be purchased and sold through the stock exchanges. A shareholder of a public limited company can transfer his shares without the consent of other shareholders. But there are certain restrictions on transferability of shares in case of private limited company.

Common seal
Since a company is an artificial person, it cannot put its signature on any document. Therefore, it is statutory for every company to have a seal on which the name of the company is engraved. Affixing of seal on any document signifies the signature of the company. Of course two directors have to sign as witnesses in such .cases.

Separation of ownership from management
The shareholders are the owners of the company. They are heterogeneous group of people who are widely scattered throughout the country and abroad. The shareholders elect their representatives called directors to manage the company. Thus, the company is managed by directors rather than the shareholders. This results in separation of ownership from management.

Perpetual succession
The company enjoys a continuous existence. Its existence is not affected by death, lunacy or insolvency of its shareholders or directors as the case in partnership or sole proprietorship. The company can only be dissolved by the operation of law.

Investment facilities
A joint stock company raises its funds through issue of shares to general public. Due to the small denomination of the shares, the company provides investment opportunities to all sections of people who want to put their surplus money in the company's share.


A joint stock company has to function as per the provisions of the Companies Act. The accounts are to be audited by qualified auditors. Such accounts and exports are published for the information of all stakeholders. Regular and timely reports are to be submitted to the Government.

Restricted action
A company cannot go beyond the powers mentioned in the abject clause of the Memorandum of Association. Therefore, its action is limited.

The Advantages Company




While opting company form of business, the entrepreneur should clearly gone through the distinction between company with partnership form of business. The next step arises a regard to why to go for company form of business. The following points depicts the advantageous points of this form of business.

Huge resources
A company can raise large amount of resources from the genera public by issuing shares. Since, there is no maximum limit of the number of shareholders ii case of public company, fresh shares can be issued to meet the financial requirement. Capita can also be obtained by issuing debentures and accepting public deposits.

Limited liability
The liability of the shareholders is limited to the extent of the face value of the shares held by them or guarantee given by them. The shareholders are not liable personally for the payment of debt of the company. Thus, limited liability encourages the investors to put their money in the shares of the company.

Transferability of shares

The shares of the public company are transferable without any restriction. A shareholder can sell his shares at any time to anybody in the stock exchange Therefore, the conservative and cautious investors are also attracted to invest in the shares of public company. This brings liquidity to the investors.

Stability of existence
A joint stock company enjoys perpetual succession. It continues for a long period of time because it is unaffected by the death, insolvency of the shareholders directors. Change of ownership and management also does not affect the continuity of the business.

Efficient management
A company can hire the services of professional manager for its functional areas because of its financial strength. The directors who look after the management of the company are generally experienced and persons of business acumen Therefore, the management of a company is sure to be efficient.

Scope for expansion
A company can generate huge financial resources by issuing shares and debentures to finance new projects. Companies also transfer a portion of their profit to reserve which can be utilized for future expansion. The managerial capabilities a the disposal of a company helps it for planning the future expansion and growth.

Economies of large scale production
The company is in a position to undertake large scale operation because of its huge financial resources. When the scale of operations i large, the economies in buying, selling, production etc. are enjoyed by the undertaking. The economies of large scale enables the company to produce goods at lower cost and supply the same to the consumers at cheaper prices.

Public confidence

A company submits required information to the Government and other authorities at regular intervals. The accounts of the company are audited by chartered accountants and also published for the information of the stakeholders and others. This enables a company to enjoy the trust and confidence of the public.

Social benefits
A joint stock company provides a number of benefits to the society. 1 creates employment opportunity, investment opportunity, utilizes the unutilized natural resource of the nation, supplies quality products and services at cheaper rate and generates revenue for the Government and also undertakes many infrastructural developmental programmers in the country.

Diffused risk
The entire business risk of a company is distributed over a large number of shareholders. Thus, the risk is reduced for each shareholder. No shareholder is burdened with more than what he has paid as the price of shares hold. No personal property will be attached for the same.

Tax benefits
As a separate entity, companies pay income tax at a flat rate. Because of this, the company's tax burden on higher income is less in comparison to other forms of business organization. Companies also avail tax exemptions deductions and concessions for undertaking their operations in specific areas, dealing with nature of goods and services and others.

Disadvantages of Joint Stock Company
Despite the above advantages, the company form of organization also suffers from certain demerits. The following are some of the important demerits of a company which every entrepreneurs should know while going for selection of type of business.

Difficulty in formation
The formation of a joint stock company is very difficult, time taking and expensive as compared to any other form of organization. Conceiving the very idea and getting it implemented is very difficult process. Preparation of the basic documents like memorandum of Association and Articles of Association, fulfilling legal formalities as per the Act and getting the business registered needs lot of time, money and expertise.

Oligarchic management
The management of company is democratic in theory but oligarchic in practice. It is controlled by a small group of Board of Directors who hardly protect the interest of other shareholders. They may manipulate the things with an intention to be re-elected as directors. That is why it is said that shareholders do nothing, know nothing and get nothing.

Delay in decision-making
The Board of Directors of the company decides about the policies and strategies of the company. Certain decisions are taken by the shareholders. The meeting of the directors or the shareholders cannot be held at any time as and when required. Thus, the decision making process is usually delayed. The delay in decision-making may result in losing some business opportunities.

Separation of ownership and management
The company is not managed by the shareholders but by the directors who are the elected representatives of the shareholders. The directors and managers may lack the personal initiative and motivation to

manage the company efficiently as the shareholders (owners) themselves would.

Lack of secrecy
Each and every business strategy is discussed in the meeting of the Board of Directors. The annual accounts are published and compliance to Government, Tax authorities etc. are made at regular intervals. Therefore, it is very difficult to maintain business secrecy in a company form of organization in comparison to sole proprietorship and partnership.

Speculation in shares
When profit is earned by manipulating the prices of shares without actually holding the shares, it is considered as speculation. A company provides scope for speculation and the directors and managers may derive personal benefit out of this. It is harmful to the innocent small shareholders who invest their hard earned money with a view to get higher rate of return.

Fraudulent management
The possibility of starting a bogus company, collecting huge sums of money and subsequently bringing liquidation of the company is not ruled out. The promoters with an intention to defraud may indulge in such practices. The directors and managers may function for their personal gain overlooking the interest of the company.

Concentration of economic power
The company form of business gives scope for concentration of economic power in the hands of a few through multiple directorship and creation of subsidiary companies. Some persons are elected as directors in a number of companies. These directors formulate policies of the company which will safeguard and promote their own interest. Majority shares of other companies are purchased to create subsidiary companies.

Excessive Government regulations
A company functions under too much of regulations of the Government. Reports are to be filed and compliance are made at regular intervals to appropriate authorities failing which penalty is imposed. A considerable time and money of the company is involved in the process of regular compliance.

Evils of Factory system
Due to large scale operation, the company may give rise to insanitation, pollution, congestion and some social evils like migration from villages to towns, shifting from agriculture to industry etc. They cause instances in the society.

Types of Join Stock Company

1. Chartered Company The companies that form by the order of the king of England are called the charter company. These companies were formed before 1844. For example, East India Company, Chartered Bank of England, the charter of the British South Africa Company, given by Queen Victoria (More information here)

2. Statutory Company Companies that are formed by the order of the President, or by the Legislative Committee or by bill of Parliament are called Statutory Company. These Companies are operated by those laws. For example, municipal councils, universities, central banks and government regulators, Central Bank. (More information here) 3. Registered Corporation Companies that are formed under the prevailing law of the company are called the registered company. The corporation that has filed a registration statement with the SEC prior to releasing a new stock issue. It is two typesi) Unlimited Company: The liabilities of the shareholders of this company are unlimited. For example, British all-terrain vehicle manufacturer Land Rover, GlaxoSmithKline Services Unlimited. ii) Limited Company / limited corporation: The liabilities of the shareholders are limited. For example, Charitable organisations, Financial Services Authority. This liability of a company can be of two types. a) By Guarantee b) By share value. The company limited by share can be of two types. • Private Limited Company, where the number of shareholder ranges from two to fifty. The share of these companies can’t be traded in the stock market. • Public Limited Company, where the number of shareholder ranges from seven to share limitation. The share of the public limited company is traded in the stock market.

Procedure of Formation of a Joint Stock Company
In "Bangladesh" perspective (but the moreover same process all over the world) Joint Stock Company is formed, registered and guided by the Companies Act 1994. The promoters by themselves or by their

appointed person (advocate, consultancy firm, or consultant) undertook the task of formation. However, the task of formation could be discussed in steps. 1. Promotional Steps: The person who undertook the task of formation is called promoter or entrepreneur. For Public Limited Company there should be at least seven (7) and for Private Limited company, there should be at least two (2) promoters. These promoters undertook the following tasks: a) Planning: Here the promoters decide about the objectives, area, type, capital structure of the new business. Based on these factors, the promoters go forward. b) Feasibility Analysis: Here the promoters undertook the feasibility analysis for the new venture: both from existing and potential view point. Promoters undertook different tools like SWOT (Strength, Weakness, Opportunity and Threat) Analysis; Competitive Analysis, etc. Being assured of the potentiality of the business the promoters go for the further. c) Naming the Company: The name of the company should be such that is not used by any other existing company; it is not a name of the King or Queen or President. The Public Limited Company should use (pvt.) Limited and the Public Limited Company must use Limited at the end of the company name. The promoter upon deciding the name, they submit the name in black and white for Clearance in the registrar office. The registrar upon verifying the uniqueness of the proposed name gives clearance of using the name. 2. Registration or Incorporation: To incorporate the new company the promoters needs go through the following steps: a) Collecting Registration Form and Filling it up: The promoters have to collect the registration form and other papers for a fee from the registrar office. Then they should fill up it by them selves or should take the help of the consultants or advocates. b) Preparing Documents and Submitting for Registration: The promoters have to submit the filled-up form with fees and the following documents in the registrar office: • Memorandum of Association

• Articles of Association • Capital Structure of the proposed Company • List of Directors and the amount of the sponsored share they purchased • Declaration regarding the proposed name of the company • Declaration of an advocate or chartered accountant or any director of a proposed company that the company has followed all the rules and regulations of Company Act 1994. The registrar being satisfied on the paper submitted for the proposed company issues' Certificate of Incorporation. On getting that certificate the Private Limited Company can start its business but the Public Limited Company has to go to another step to start its business. c) Obtaining Certificate of Commencement: Here the promoters should make the Prospectus for the company. This prospectus needs to be published in the daily newspaper. To get the Certificate of Commencement, the promoters need to submit the following documents to the registrar: • A copy of Prospectus • Name, address, designation, occupation, etc. of Directors • Directors’ written Letter of Agreement that they want to work as director of that company. • Declaration that the directors have fully paid the minimum amount of sponsor share. • Declaration by the company secretary or other authorized person that the above affairs have maintained all rules and regulation of Company Act 1994. The registrar being satisfied on the paper submitted for the proposed company issues' Certificate of Commencement. On getting that certificate the Public Limited Company can start its business.

3. Flotation Stage If the sponsor directors are unable to provide the adequate capital, public limited company can float their share in the capital market (Stock Exchange) to get required capital. By this time, the company can do its other functions.

The difference between Private Company and Public Company
The following differences between a private company and a public company can be drawn: Private Company

Public Company

• •

1.It's minimum number of persons is two and the maximum is 50. 2.It makes the use of private limited after its name. 3.It can commence its business operation after getting certificate of incorporation. 4.The memorandum of association and the articles of association is signed by at least two persons. 5.The filling of both memorandum and article of association is obligatory. 6.It does not require the filling of the prospectus or statementin-lieu of prospectus. 7.It cannot sell shares to the general public in the open market.

• •

• •

1.It's minimum number of persons is seven and the maximum is unlimited. 2.It makes the use of the word limited after the name. 3.It requires both the certificate of incorporation and the certificate of commencement for its commencement. 4.It's memorandum and articles of association is signed by at least seven persons. 5.It may not have its own articles of association because it may adopt table 'A'. 6.It must file prospectus or statement in lieu of prospectus before allotment of shares. 7.It sell shares to the general public in the open market. 8.Transfer of shares is not

• •

8.Transfer of share is restricted in the articles of association. 9.There are of least two directors and they need not retire by rotation. 10.There is no legal restriction on director's remuneration.

restricted and as such shares are freely transferable and are quoted in the stock exchange. 9.It has at least 3 directors and they are subject to retire by rotation. 10.The directors cannot draw remuneration more than 11 percent of the net profit of the company.

Memorandum of Association
Memorandum of Association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this Act “The purpose of Memorandum of Association is to enable the share holders, creditors and those who deal with the company to know what its permitted range of enterprise is.” - Lord Macmillan

Articles of Association
A document that specifies the regulations for a company's operations. The articles of association define the company's purpose and lays out how tasks are to be accomplished within the organization, including the process for appointing directors and how financial records will be handled.

Difference between Association





Memorandum and articles are public documents. They are inter-linked and require to be registered for the formation of a company. Where there is any ambiguity or where the memorandum is silent on any point, the articles may serve to explain or supplement the memorandum. Beyond this, the two documents have nothing in common and differ from one another in the following respects:

1. Memorandum of association is the charter of the company and defines the scope of its activities. Articles of association of the company is a document which regulates the internal management of the company. These are the rules made by the company for carrying out the objects of the company as set out in the memorandum. 2. Memorandum of association defines the relation of the company with the rights of the members of the company interest and also establishes the relationship of the company with the members. 3. Memorandum of association cannot be altered except in the manner and to the extent provided by the act, whereas the articles being only the byelaws of the company can be altered by a special resolution. 4. Memorandum is a supreme document of the company whereas articles are subordinate to the memorandum. They cannot alter or control the memorandum. 5. Every company must have its own memorandum. But a company limited by shares need not register its articles. In such a case table A applies. 6. A company cannot depart from the provisions contained in its memorandum, and if it does, it would be ultra-vires the company. Anything done against the provisions of articles, but which is intravires the memorandum, can be ratified.

Joint-Stock Companies

The Characteristics of Joint Stock Company

The Advantages and Disadvantages of Joint Stock Company

Types of Join Stock Company

The difference between Private Company and Public Company

Definition of Memorandum of Association

Definition of 'Articles Of Association'

Difference between Memorandum and articles of Association

Co-operative Society
Definition of Cooperative Society
A cooperative society is essentially an association of person who join together on a voluntary basis for the furtherance of their common economic interests.

The Essential Characteristics of Co-operative Society
The following are the some of the definitions of cooperative organizations. (1) International Labour Organization- "Cooperative is an association of person usually of limited means, who have voluntarily joined together to achieve a common economic, end through the formation of a democratically controlled business organization, make equitable contribution to the capital required and accepting a fair share of risks and benefits of the undertaking." (2) Hubert Calvest- "Cooperative is a form of organization wherein persons voluntary associates together as human beings on the basis of equality for the promotion of the econo interests of themselves." (3) The Indian Cooperative Societies Act, 1912 - Section 4 of this Act definies cooperatives "as a society which has its objectives the promotion of economic interest, its members in accordance with cooperative principles." Cooperative Society is that society which has been registered under the Cooperative Societies Act, 1912, or under any other law for the time being in force in any state registration of cooperative society." (4) Mr. Talmaki - "Cooperative society is an association of the weak who gather together for a common economic need and try to lift themselves from weakness into strength through business enterprise."

Characteristics of Co-operative Society
Based on the above definitions, we can derive the following characteristics of cooperative organizations. 1. Voluntary association: Everybody having a common interest is free to join cooperative society. There is no restriction on the basis of caste, creed, religion, colour, etc. Anybody can also leave it at any time after giving due notice to the society. That is specialty of any cooperative society. There should be minimum of 10 members to for cooperative society but there is no maximum limit for the membership. 2. Separate legal entity: A cooperative society after registration is recognised as separate legal entity by law. It acquires an identity quite distinct and independent of its member can purchase, dispose its own assets, can sue and also can be sued. The income of cooperative society is legally taxable as per the Income Tax Act, 1961. 3. Democratic management: Equalities is the essence of cooperative enterprises, governed by democratic principles. Every member has got equal right over the function management of that society. As such each member has only single voting right irrespective of the number of shares held or capital contributed by them. In case of cooperative society, no member detects the terms and conditions of the functioning because "one man one vote" is the thumb rule. 4. Service motive: The main objective being formation of any cooperative society is for mutual benefit through self-help and collective effort. Profit is not at all in the agenda of the cooperative society. But if members so like, they can take up any activities of their choice to generate surplus in order to meet the day-to-day expenses. 5. Utilisation of surplus: The surplus arising from the operation of business is partly kept in a separate reserve and partly distributed as dividend among the members. According to Indian Cooperative Societies Act - 1912, each society must transfer at least one-fourth of its profits to general reserve.

6. Cash trading: One exception in the cooperative society is that like other business if never go for credit sales. It sells the goods on the basis of cash only. Hence, the cooperative society hardly come across with the financial hardship because of non-collection of sales dues. Members can only purchase on the basis of credit, which is an exception to the present rule. 7. Fixed rate of return: All members are supposed to contribute capital for the formation of a cooperative society or at the time of joining as a member of the cooperative ^society. In return to the capital invested, the members are assured of a fixed rate of return maximum to the extent of 9 per cent per annum on the sum deployed by them. This amount is being paid from the surplus generated by the society on that year. This is an incentive extended by the society to its members. 8. Government control: All the cooperative societies of the country are regulated by the Government through its different rules and regulations framed from time to time. Cooperative societies of the country are required to register themselves as per the Indian Cooperative Societies Act, 1912. Sometimes different State Governments also frame laws regarding the registration and functioning of cooperative societies for their states. 9. Capital: The capital of the society is raised from its members by way of share capital. However, the major part of finance is raised by the society through taking loan from the Government or by accepting grants and assistance from the Central or State Government or from the apex cooperative institutions like state and central cooperative banks operating in that state.

Objectives of Co-operative Society
To enhance and encourage the cultural heritage of Northwest Cameroon through quality craft production

-To improve the living standards of craftsmen by pooling their resources. -To facilitate the collection and marketing of crafts through cooperative efforts. -To promote the exportation of Cameroonian crafts. -To seek funding and technical assistance from donors. -To provide lucrative employment to school graduates. -To fight against child labor. -To promote gender equality in our society.

Types of Co-operatives Society
The following are the main types of cooperative enterprises: i. Producer Cooperative Societies These are formed to eliminate the middlemen and capitalist groups from the industrial production. Its main purpose is to produce goods for the requirements of its members. Surplus productions are also supplied to out riders in the open market at profit. All the necessary activities .as production, management and marketing are performed by the members themselves. Its members get dividend on the basis of the capital invested by them. Objects (a) (b) (c) (d) To purchase the raw materials and other factors at most economical prices. To produce the goods at the most economical level. To supervise the production most efficiently and effectively. To dispose of the surplus production to non members at maximum prices.

(e) (f) (g) ii.

To eliminate the middlemen and capitalists. To remove the worker's grievances in respect of working conditions, wages etc. To arrange for the democratic control of the industrial unit. Consumer Cooperative Societies

The society is the voluntary association of ordinary people formed with the object of obtaining daily requirements of the members. It directly purchases the goods at large scale from the producer or wholesalers at whole sale price. It thus eliminates capitalists, retailers and other middlemen from the channel of distribution and members are in a position to make their purchase at cheater rate. Anyone can become member by purchasing one share of the society. Sometimes goods are also supplied to non-members but they do not share in the profit of the society. Profit earned by the store are distributed among the members according to the value of the purchases conducted by the manager who is elected by the members. Generally its two types are popular in the world. (a) (b) 1. 2. Retail cooperative store. Wholesale cooperative store. To eliminate the retailers, capitalists and wholesalers. To promote the welfare of the members.


3. To supply the daily necessities of life to its members at market price. 4. To increase the purchasing power an standard of living of the members of the society. iii. Marketing Cooperative Society It is the voluntary association of producers formed for the object of arranging the disposal of their output. It pools together the output of the individual members and arranges to supply the product at highest possible price. The profit of the sale of the ~ products is distributed among the contributing producers according to their individual contribution to the pool. This kind of society is particularly useful for

the small producers and agriculturists. It can be formed in two organization according to the local condition of the country i.e. (a) (b) Single purpose society Multi purposes society

Objectives 1. To eliminate the middlemen who are liable of the high cost of marketing. 2. 3. 4. 5. 6. To pool together the output of the individual members. To grade and process of the pooling products of the members. To dispose of the product at the maximum price. To adjust supply to demand. To provide storage facilities to its members.

7. To procure the information relating to market for the member's product. 8. To provide the financial facilities to its members. iv. Insurance Cooperative Society This type of cooperative society is formed for the objects of providing group insurance facilities to its members. It makes the contract with sound insurance company on collective terms and conditions and thus pay lower premium rate to insurance company as compared with ordinary policy holders. These are other two forms of cooperative Insurance i.e. 1. 2. Mutual office Self concern.

In the Mutual office, the policy holders are the owners and the profit of the insurance company is utilized in the following ways: (a) (b) (c) To strengthen the financial position of the company. To decrease true amount of premium. To distribute bonus to its members.

Self concern

Cooperative society is organized to provide insurance facilities like the private insurance company and issued policy to its members for reasonable amount. Object 1. 2. 3. 4. v. To provide insurance facilities to its members. To charge the low rate of premium. To promote the welfare of the members. To encourage the habit of thrift and investment.

Housing Cooperative society

It is an association of middle and low income groups of people. Generally it is formed in urban areas. The main purpose of this form of society is to protect its members against exploitation by landlords. It not only grants financial assistance to its members but also achieve the economics of purchase of building material in bulk. In order to become a member of the society one must buy at least one share of the society. The liability of the member is limited to his capital contributed. It is also called "Building Society" and may be divided into three types i.e. (1) (2) (3) Objectives 1. 2. 3. 4. 5. To receive deposits from its members. To make loans to its members for the construction of house at low rate of interest. To render technical services for its members. To purchase building materials at economical rate. To perform the welfare activities as water supply, roads, sewerage, electricity etc. Housing Building Society Land Society Finance Society

vi. Cooperative Farming Society This form of Society is formed with the object of obtaining the benefits of large scale farming and maximizing agricultural products. It is

basically agricultural. cooperative which is confined to agricultural countries. Its members generally relate to the formers including those owing land. The cooperative forming are of the following types: 1. 2. 3. 4. Objective (a) (b) (c) (d) To consolidate holding. To introduce new technique of cultivation. To improve the irrigating system. To increase the area under agricultural operations. Cooperative collective farming Society. Cooperative joint farming society. Cooperative better farming society. Cooperative tenant farming society.

(e) To make necessary steps for the improvements of the standard of living of the farmers. (f) (g) (h) To increase the production per acre. To provide seeds manures and implements to its members. To dispose of agricultural output.

vii. Credit Cooperative Society Credit cooperative society is the voluntary association of .the financially weak persons organized with the object of providing short term financial requirements to them. This society performs important role in the rural areas where the dishonest money lenders have been exploiting simple villagers by charging high rate of interest. The Funds of the society consist of (a) Membership fees, (b) Dispose of shares (c) Deposits from members and non-members (d) Loan from govt. and semi govt. The liability of members is unlimited. This assists the society in raising funds and ensures that every member will take keen interest in the activities of the society. The society prefers the poorer members in granting loan and charges low rate of interest from them. Generally the society advances the amount for productive purposes but some loans

are also given to members for unproductive purposes. Credit cooperative society may be divided into two types: (1) (2) Objects (a) (b) (c) (d) (f) To get rid of the pressure of money lenders. To provide the financial facilities for short term to its members. To keep the minimum rate of interest on loan. To develop the habit of thrift and saving among the members. To encourage the habit of mutual aid. Agricultural Credit Society Non-agricultural credit Society

Principles of Co-operatives
Some of the principles of co-operative are discussed as follows: I. Voluntary Membership: Everyone is at liberty to enter or leave the co-operative society as and when he likes. Nobody is compelled to join a co-operative society. The members are also free to use or not to use the services of the society. Though there is no limit on the membership of the societies, sometimes certain limits are imposed to keep the society as a workable group. Consumer co-operatives, insurance societies etc. may limit membership to a number which is properly manageable. Voluntary member is the main ingredient of co-operation. Everybody willing to join a society is allowed to do so. Voluntary membership has been responsible for the success of co-operatives movement. II. Political and Religious Neutrality: The membership of a co-operative society is opened to all irrespective of religion, caste, creed, colour or political affiliation. The co-operative movement can attract a large membership only by staying out of politics where people have divided opinions. Co-operatives represent universal brotherhood and it should not lose its path in political contradictions. There is no place for caste or discrimination in cooperative . The primary aim of co-operatives is to serve its members.

So, co-operative societies are neutral as far as political and religious affiliations are concerned. III. Democratic Management: The management of a co-operative society is always on democratic lines. All the members of a society elect a body of persons to conduct and control the day-to-day working of the society. The members frequently meet and give guidelines to its executive. The management is elected through one man one-vote system. The day-to-day work is conducted by expert persons but the ultimate control lies with the members. In a co-operative, democracy is more than a system, it is a condition of its business success. Co-operative business stands or falls with democracy. IV. One Man, One Vote: In co-operative societies every member is given one vote irrespective of his contribution towards their basis of number of shares held by a person. So persons having large number of shares control the organization. In a co-operative, nobody can control the society on the strength of his wealth. All members have equal voice in the management of the society. V. Service Motive: The primary objective of co-operative societies is to provide service to their members. The aim is not to earn profits as is the case in all other forms of organizations. The service of members is the fundamental object of co-operative societies. The societies earn a small amount of profit to cover up administrative expenses. The profit is generally earned when goods are sold to non-members.

Advantages of Co-operative Society
1. Easy to form:
The formation of a cooperative society is very simple as compared to the formation of any other form of business organizations. Any ten adults can join together and form a cooperative society. The procedure involves in the registration of a cooperative society is very simple and easy. No legal formalities are required for the formation of cooperative society.

2. No obstruction for membership:
Unless and otherwise specifically debarred, the membership of cooperative society is open to everybody. Nobody is obstructed to join on the basis of religion, caste, creed, sex and colour etc. A person can become a member of a society at any time he likes and can leave the society when he does not like to continue as ; member.

3. Limited liability:
In most cases, the liabilities of the members of the society is limited to the extent of capital contributed by them. Hence, they are relieved from the fear of attachment of their private property, in case of the society suffers financial losses.

4. Service motive:
In Cooperative society members are provided with better good and services at reasonable prices. The society also provides financial help to its members < the confessional rates. It assists in setting up production units and marketing of produces c small business houses so also small farmers for their agricultural products.

5. Democratic management:
The cooperative society is managed by the elected members from and among themselves. Every member has equal rights through its single vote but can take active part in' the formulation of the policies of the society. Thus all member are equally important for the society.

6. Stability and continuity:
A cooperative society cannot be dissolved by the death insolvency, lunacy, permanent incapability of the members. Therefore, it has stable life are continues to exist for a longer period. It has got separate legal existence. New members m< join and old members may quit the society but society continues to function unless are otherwise all members unanimously decided to close the same.

7. Economic operations:

The operation carried on by the cooperative society economical due to the eliminations of middlemen. The services of middlemen are provided by the members of the society with the minimum cost. In the case of cooperative society, the recurring and non-recurring expenses are very less. Further, the economies of scale-ma production or purchase, automatically reduces the procurement price of the goods, thereby minimizes the selling price.

8. Surplus shared by the members:
The society sells goods to its members on a nominal profit. In some cases, the society sells goods to outsiders. This profit is utilized for meeting the day-to-day administration cost of the society. The procedure for distribution of profit that some portion of the surplus is spent for the welfare of the members, some portion kept reserve whereas the balance shared among the members as dividend on the basis of this purchases.

9. State patronage:
Government provides special assistance to the societies to enable them to achieve their objectives successfully. Therefore, the societies are given financial loath lower rates. Government also extends many type of subsidies to cooperative societies strengthening their financial stability and sustainable growth in future.

Disadvantages of Co-operative Society:
Despite many an advantages, the cooperative society suffer from certain limitations c drawbacks. Some of these limitations, which a cooperative form of business has are as follows:

1. Limited resources:
Cooperative societies financial strength depend on the cap contributed by its members and loan raising capacity from state cooperative banks. The membership fee is limited for which they are unable to raise large amount of resources as their members belong to the lower and middle

class. Thus, cooperative are not suitable for the large scale business which require huge capital.

2. Inefficient management:
A cooperative society is managed by the members only. They do not possess any managerial and special skills. This is considered as major drawback of this sector. Inefficiency of management may not bring success to the societies.

3. Lack of secrecy:
The cooperative society does not maintain any secrecy in business because the affairs of the society is openly discussed in the meetings. But secrecy is very important for the success of a business organization. This paved the way for competitors to compete in more better manner.

4. Cash trading:
The cooperative societies sell their products to outsiders only in cash. But, they are usually from the poor sections. These persons require to avail credit facilities which is not possible in the case of cooperatives. Hence, marketing is a shortcoming for the cooperatives.

5. Excessive Government interference:
Government put their nominee in the Board of management of cooperative society. They influence the decision of the Board which may or may not be favorable for the interest of the society. Excessive state regulation, interference with the flexibility of its operation affects adversely the efficiency of the management of the society.

6. Absence of motivation:
The members may not feel enthusiastic because the law governing the cooperatives put some restriction on the rate of return. Absence of relationship between work and reward discourage the members to put their maximum effort in the society.

7. Disputes and differences:
The management of the society constitutes the various types of personnel from different social, economical and academic background. Many a times they strongly differs from each other on many important issues. This becomes detrimental to the interest of the society. The different opinions and disputes may paralyses the effectiveness of the management.

Limitations of Co-operative Societies
It however suffers from the following limitations.

1. Limited resources:
Societies cannot raise huge amounts as capital because the members may not be able to invest more.

2. Limited scope:
As the resources are limited the chance of expansion is limited.

3. Inefficient management:
It is usually managed by members and the members may lack experience and managerial capacity.

4. No secrecy:
Secrets cannot be maintained by business.

5. Lack of co-operation:
Sometimes the members may not have unity among themselves which might affect the business of co-operatives.

6. No credit facility:
Since credit facilities are not offered to members usually, the members may not be interested in buying goods for cash.

7. Political interference:
Interference by political parties may come in the way of proper functioning of co-operative societies.

Co-operative Society

The essential characteristics of Cooperative Society

Advantages and Disadvantages of Co-operative Society

Objectives of cooperative society

Types of cooperatives society

Principles of Co-operatives

The Advantages and Disadvantages of Cooperative Society

The Limitations of Cooperative Societies

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